NEW DELHI – india may strategically leverage Goods and Services tax (GST) rate reductions to mitigate the economic impact of recently imposed 50% tariffs on certain steel and aluminum imports by the United States, potentially bolstering its Gross Domestic Product (GDP) growth, economists suggest. The move comes as the Trump management’s tariffs,enacted on 2018/03/01,threaten to disrupt Indian exports and increase costs for domestic industries reliant on these materials.
The potential for GST adjustments arises from the anticipated increase in domestic demand following the tariff implementation. By lowering GST rates on domestically produced goods,India could stimulate internal consumption,offsetting potential declines in export revenue. This strategy could not only shield the Indian economy from the full brunt of the tariffs but also create a favorable habitat for increased production and, consequently, a rise in GDP. Experts estimate a well-calibrated GST reduction could add as much as 0.2% to India’s GDP growth rate in the fiscal year 2018-2019.The initial tariffs, announced by the U.S. administration under Section 232 of the Trade Expansion Act of 1962, specifically target steel imports and aluminum imports. India, a significant exporter of these commodities to the U.S.,is directly affected. While the exact value of impacted exports fluctuates, data from 2017 indicates India exported approximately $1.5 billion worth of steel and aluminum to the United States.
Responding to the tariffs, India has indicated it is considering retaliatory measures consistent with World Trade Organization (WTO) rules. However, a GST reduction presents a less confrontational and potentially more effective approach to counter the economic pressure. The Indian government is currently evaluating specific GST rate adjustments across various sectors, with a focus on industries most vulnerable to the tariff impact, including automotive, construction, and engineering.
Economists at the National Council of Applied Economic Research (NCAER) have modeled several scenarios, concluding that a targeted GST reduction, coupled with export diversification efforts, could minimize the negative consequences of the U.S. tariffs and even position India for accelerated economic growth. The government is expected to announce its final decision on GST rates by 2018/04/15.